2007 was too late to head off the crisis

The country's economic woes were a somber topic at the presidential debate in Nashville, Tenn., on Oct. 7, 2008, with both candidates explaining their thoughts on the root of the crisis.

"I wrote to Secretary Paulson, I wrote to Federal Reserve Chairman Bernanke, and told them this is something we have to deal with, and nobody did anything about it."

It's undisputed that Obama wrote the two officials a letter on March 22, 2007.

"There is grave concern in low-income communities about a potential coming wave of foreclosures," Obama wrote. "Because regulators are partly responsible for creating the environment that is leading to rising rates of home foreclosure in the subprime mortgage market, I urge you immediately to convene a homeownership preservation summit with leading mortgage lenders, investors, loan servicing organizations, consumer advocates, federal regulators and housing-related agencies to assess options for private sector responses to the challenge." ( Read the full text here .)

But Obama brought up this letter in the context of explaining the current economic crisis. There's nothing to suggest in the letter that Obama had early insights into the events that would unfold in 2008. His letter is concerned with people losing their homes, not a systemic threat to the economic system.

(See our story and other statements on potential causes of the economic crisis here.)

We also checked news clips to look at Bernanke and Paulson's public statements around the time after Obama sent his letter.

• On March 28, 2007, Bernanke testified before Congress, saying, "Although the turmoil in the subprime mortgage market has created financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear."

• On May 15, 2007, Bernanke gave a speech in which he discouraged new regulation of derivatives, which played a role in the credit crisis of 2008. " We should always keep in view the enormous economic benefits that flow from a healthy and innovative financial sector," Bernanke said.

• On May 17, 2007, Bernanke said the Federal Reserve was considering taking steps to rein in subprime lending, but would be cautious not to overregulate. "We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system," Bernanke said.

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• On June 20, 2007, Paulson said, "We have had a major housing correction in this country. ... I do believe we are at or near the bottom."

So it sounds like Obama's letter didn't make much of a splash. Certainly Bernanke and Paulson were not sounding alarm bells.

We asked two economists, one with a right-leaning group and one with a left-leaning group, if a warning issued in 2007 could have made a difference to the problems of October 2008. Both of them said it was too late by then, because the questionable loans and securities had been issued by that point.

"The horse was already out of the barn," said Dean Baker, an economist and co-director of the left-leaning Center for Economic and Policy Research in Washington.

"Everyone with a brain who was paying attention knew that there were big problems associated with outstanding subprime risk," said Charles Calomiris, a professor at Columbia Business School and a scholar at the conservative American Enterprise Institute. But, he added,  "There was little that the Fed could have done after March 2007 to prevent the crisis from happening."

So Obama is right that he wrote the letter. Saying Bernanke and Paulson didn't do anything about it sounds harsh, but it is a rough approximation of what happened. But Obama's letter was largely confined to the problems of low-income homeowners who were losing their homes. It was not an early warning on the economic collapse of '08. We rate his statement Half True.